The roles of chairman and non-executive director in a company continue to be widely debated. Here are some personal reflections from a man with 30 years experience of serving on, or presiding over company boards around the world.
Written by: Sir John Parker, National Grid
Being chairman is an increasingly demanding challenge. You don’t just have to be in the US to understand that if things go wrong you are ultimately No.1 in the firing line. In the UK, which I know best, the travails at Marconi, Mayflower, Shell, BP and more recently the banks, vividly highlight the responsibilities involved.
So how best to equip yourself for the task? In my view, a solid apprenticeship as a non-executive director is almost always a prerequisite in the transition from divisional boss or CEO to the chair of a quoted company. The transformation from executive to non-executive does not always go smoothly because a different style and approach are necessary to be a good non-exec, and this has to be worked at. The effective non-executive is above all able to exert influence in the boardroom, has an ability to put his or her finger on key issues, focuses clearly on shareholder value, commands the attention of all the other directors when he or she speaks, reads the paperwork in advance and avoids superfluous questions. Nothing upsets me more than a non-exec who comes unprepared.
At the same time, non-execs must strike a balance between asking probing questions and supporting the executive team, all the time playing a full role on audit, election and remuneration committees (in themselves a great development ground and when well chaired, serving to free up board time that can be focused on shareholder value and future strategy). Effective non-executives constantly seek to increase their knowledge of the company and avoid “lecturing” others in an arrogant way.
Another way to learn the art of chairmanship, of course, is to observe other people doing the job well. Not all my chairmen have been flawless (far from it) but I’ve been fortunate enough as a non-executive director to have worked under some outstanding individuals. I’d single out the late Lord (Bob) Haslam, chairman of British Coal (where I was on the board for some seven years) and previously deputy chairman at ICI. He was a great influencer – yet with a low profile – and a gentleman, but someone who, when required, could be very tough. Sir David Lees, chairman of GKN (where I spent 10 years) and now chairman of Tate & Lyle, was superb on governance and administration. He focused hard on performance goals and was an unemotional devotee of portfolio management. I still tell him he ran a great academy for the development of non-executive directors.
Sir Richard (Dick) Giordano, who chaired the board of British Gas during my three years there, was a dominant personality who nevertheless appreciated strong non-executive directors: he used them to help force through the break-up of the company.
Let us now turn to what the chairman actually does and does not do. I’d start by saying categorically that the chairman’s role is to run the board (the CEO runs the company); to be a sounding board for the CEO (an adviser, counsellor); to be available to shareholders (though on the understanding that the CEO leads in this respect with the finance director); to take on ambassadorial roles in close association with the CEO; and to agree with the CEO and non-execs the overall board and management philosophy and strategy for the company. The chairman, crucially, does not issue executive commands down the line and keeps his or her hands off the operational levers.
At one of the large companies I chaired, I inherited a young CEO who was in the top executive post for the first time, and who was evidently concerned as to how we were going to “share out” our chairman-CEO responsibilities. He hadn’t sailed a 40-foot yacht before, so I took him out to sea under full sail in just such a vessel. After half an hour I asked him to take the wheel. “You know the direction we have agreed,” I explained, “you are now responsible minute by minute for managing this yacht. You are the CEO.” But I added, “Events can change; the wind, currents, tides can all shift and strengthen. If so, I will be around should you feel I can give you any advice. But only if I think you are misjudging the situation will I intervene. I’m called the chairman.” And I went below to boil the kettle.
In what ways can it go wrong? A bad chairman in my experience is unable to let go of the operational levers, or the authority that goes with that. A bad chairman has a tendency to give executive commands as he or she tramps around the parish (confusion at best, disaster at worst), insists on a high leadership profile in public, is too dominant, dictatorial and arrogant (probably the worst trait), is a poor listener and burns up all the energy in the room.
Such an individual will almost certainly create a dysfunctional relationship with the CEO. The CEO-chairman chemistry is critical because good chairmen help foster good CEOs. As a chairman myself, I always endeavor to have a formal hour or so each week with the CEO if we are not travelling. I tend to focus on governance and the management of board agendas and committees as well as talking about people and development or succession issues. We discuss strategic direction, business performance and opportunities, our relations with government and regulators and how shareholders received the CEO’s visits after interim or full-year results. It is important, too, for the chairman to keep in touch with the company’s advisers, to keep an eye on major customer relationships, and – on top of formal face time – to be willing to wander into the CEO’s office for informal chats, and vice versa.
A key part of good chairmanship is effective management of the nominations committee, ensuring that well defined processes for the succession of key players in the boardroom are in place. One very important job for the chairman is to oversee the development of executive directors, against a CEO template of competencies, in the hope that one will emerge as a successor candidate.
CEO succession is one of the most important “events” to get right. The decision is in the hands of the chairman and the non-executive directors. Note that I said non-executive directors and not just the nominations committee. It is a big decision in which everyone has to be involved. The chairman takes the lead. The outgoing CEO is not involved other than to capture his or her views on the performance of internal candidates. He therefore has no authority to express a view publicly or internally on the issue. The date when an existing CEO steps down should be generally visible to the whole organization and it is that deadline that the chairman is working towards, setting and managing expectations of when and how the change will take place. The handover date is thus the “line in the sand.”
The importance of the chairman’s role is not always visible but can never be underestimated. It can be summed up by one of my favorite Chinese proverbs: “When the best leaders’ work is done, the people said we did it ourselves.”
Sir John Parker is Chairman of National Grid plc, Vice-Chairman of DP World (Dubai) and Joint Chairman of Mondi plc. He is Senior Non-Executive Director (Chair) of the Court of the Bank of England, Member of the UK Prime Minister’s Business Council for Britain and a Non-Executive Director of Carnival Corporation and EADS.